Palladium price looks primed for further gains as long-term trend plays out

Palladium supply/demand dynamic continues to benefit prices, with Q1 jitters now giving way to a bullish trend that could last throughout 2021

Palladium supply issues should provide support

Palladium is a precious metal which is often overlooked for its more flashy siblings, with gold, silver, and platinum typically grabbing the limelight. However, the past month has seen Palladium outperform those other markets, with recent volatility seemingly providing us with a potential buying opportunity here.

The rise in the theft of catalytic converters serves to highlight the elevated prices for the materials involved such as rhodium, platinum, and palladium. With catalytic converters increasingly favouring palladium over platinum due to its lower price, we have seen 80% of all demand for palladium come from autocatalyst usage. With catalytic converters utilized as a key tool to bring down emissions, they have grown in importance as car companies seek to make their cars more environmentally friendly.

The decline in demand for cars seen earlier in the year did deal a blow to palladium at the height of the crisis, yet we are now looking at a global recovery which will include a surge in demand from China in the coming years. One question is whether the demand for electric vehicles will detract from the traditional combustion engines that require palladium. However, while the long-term outlook could see that demand dry up to the detriment of palladium prices, it is unlikely that will happen quite yet. With the British Prime Minister Boris Johnson shifting the goalposts to stop non-electric car sales in 2030, there will still be plenty of demand in the coming years.

How is Palladium produced and why could it rise further

Palladium is often produced as a by-product of the refining process for nickel, copper, and zinc. Thus with many refiners having to slow their output due to the pandemic, we have seen a significant decline in production levels this year. Growing Chinese imports should provide a major beneficiary for palladium prices, with the lack of any domestic production meaning that all car production will rely on imports.

Furthermore, there are many that are speculating we could see a period of weakness for the US dollar in the year ahead. With the pandemic and US election finally looking to resolve towards a more stable and less volatile future, the demand for havens such as the dollar is likely to wane as a result. That weaker dollar should help commodities such as palladium given that it is priced against the greenback. As such, with a weakening dollar, growing Chinese demand, depressed supply, and growing regulations for vehicle emissions, we could be in for a continued rise which could ultimately take us back towards record highs.

Could the Palladium price hit record highs?

With all those positive factors coming into play over the coming year, the uptrend seen over recent years looks likely to continue. The weekly chart below highlights that wider uptrend, with the volatility seen over the course of March and April providing the one major bump in the road for an very consistent uptrend.

The daily chart highlights how we have seen a similarly consistent uptrend over the past six months, with the ascending standard deviation channel highlighting the positive trajectory in play. While we saw a sharp move lower in the days that followed the Pfizer announcement, that appears to have provided us with a potential buying opportunity.

Finally, the intraday outlook is highlighted on this four-hour chart, with the retracement pullback coming within touching distance of the 76.4% Fibonacci retracement level. With that in mind, we are looking at a potential recovery from here. A break through the $23.80 resistance level would complete a double bottom formation, bringing a renewed bullish signal. The fleeting move through that resistance level overnight highlights the potential for such a break, and that adds greater confidence to bullish view. That outlook holds unless we see a break below the $21.85 lows seen at the end of October.

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